As part of the Fed’s year-long review of its monetary policy strategy, tools and communications practices, the St. Louis Fed is assembling members of its six advisory councils, representing a geographically and industry-diverse group of stakeholders.

Demographics of Wealth, 2018 Series, Essay No. 2

This essay explores the connections between a person’s birth year and measures of his or her family’s financial well-being, including income and wealth. We found that wealth losses occurred across the age spectrum around the Great Recession but that families younger than retirement age suffered the most and have rebounded slowly. Based on data from nearly 48,000 families born throughout the 20th century, we found that families headed by someone born in 1960 or later were less likely to have recovered by 2016 than older families.

We focused on six groups of families based on the birth decade—from the 1930s through the 1980s—of the family heads. We chose these decadal cohorts because they were the only ones whose typical (situated in the middle) family head was between 24 and 80 years old both before and after the financial crisis of 2008-09. We compared the median inflation-adjusted wealth of these groups to predicted levels achieved at various ages based on data from all families responding to the Survey of Consumer Finances between 1989 and 2016.

Our examination of the links between birth year and wealth revealed three important findings:

There is a pronounced life cycle of wealth. The typical family’s wealth traces out an upward sloping arc over most of its life cycle, beginning around zero in the early 20s and reaching a peak of about $228,000 at age 72. The range of actual wealth accumulation across families is very large, but the typical family’s experience is well-described as rapid initial growth in percentage terms followed by steady deceleration and eventual decline—albeit slight—throughout the rest of the life cycle. The shape of the wealth life cycle is influenced by economic and financial developments over time.

Members of all birth cohorts lost wealth around the Great Recession, but only typical families headed by someone born in 1960 or later had failed to get back on track by 2016. Median wealth levels of all six decadal cohorts we studied were comfortably above their respective age-specific wealth benchmarks in 2007. The Great Recession reduced median wealth substantially among all six groups. The four youngest cohorts (1950s and later) dropped below their age-specific wealth benchmarks. The three youngest cohorts (1960s and later) remained below those benchmarks in 2016.

The 1980s cohort is at greatest risk of becoming a “lost generation” for wealth accumulation. Wealth in 2016 of the median family headed by someone born in the 1980s remained 34 percent below the level we predicted based on the experience of earlier generations at the same age. The corresponding shortfalls of the 1960s cohort (–11 percent as of 2016) and the 1970s cohort (–18 percent) are worrying but are much smaller than their respective 2010 and 2013 shortfalls. Alone among the six decadal cohorts we studied, the typical 1980s family lost ground between 2010 and 2016, falling even further behind the typical wealth life cycle. This represents a missed opportunity because asset appreciation is unlikely to be as rapid in the near future as it was during the recent period. Two reasons for optimism are that the 1980s cohort has many years to get back on track and it is the most educated—hence, also potentially the highest-earning—group ever.